Price Discovery

We propose the clock-proxy auction as a practical means for auctioning many related items. A clock auction phase is followed by a last-and-final proxy round. The approach combines the simple and transparent price discovery of the clock auction with the efficiency of the proxy auction. Linear pricing is maintained as long as possible, but then is abandoned in the proxy

An analysis of electricity market reforms already taken place in the UK, Norway, Alberta (Canada) and California (USA) leads to our overall conclusion that the introduction of a competitive generation market, of itself, has failed to deliver reliable service at low and stable prices. The market reform failures are attributed to market power abuse by few dominant sellers (especially at times of transmission congestion), poor market design that invites strategic bidding by suppliers, the lack of customer response to price spikes, capacity shortage caused by demand growth not matched by new capacity, and thin trading of forward and futures contracts that are critical for price discovery and risk management. The paper then explains why an electricity market reform can easily fail to deliver the promised gains of better service at lower and more stable prices. The policy implication is that an electric market reform can be extremely risky, and may lead to a disastrous outcome. Thus, it is imprudent to implement such a reform in countries with limited sites for new generation and no indigenous fuels (e.g., Israel and Hong Kong). These countries should therefore consider introducing performance-based regulation that can immediately benefit electricity consumers in terms of lower prices, more stable prices, improved reliability, more choices, while encouraging the electric sector to pursue efficient operation and investment. r note that COSR can have incentives for cost cutting because a regulated utility typically retains its cost savings between rate cases. 0301-4215/03/$ -see front matter r

Cross-listing, price discovery and the informativeness of the trading process $ Abstract This paper analyzes the price discovery process of securities that trade on multiple markets with trading sessions that totally or partially overlap. Building on Hasbrouck's (1995) information share approach, we introduce a methodology that distinguishes two sources of information asymmetries between markets: trade-related and trade-unrelated informative shocks. This approach determines how much of each market's relative contribution to the price discovery process (during the overlapping period) is attributable to its own trading activity. We provide empirical evidence on the contribution of the NYSE to the price discovery process of Spanish cross-listed stocks during the daily (two-hour) overlapping interval. r `lit Torro´, and two anonymous referees for their useful suggestions and comments. We also acknowledge the insightful comments of the participants at the IX Foro de Finanzas 2001 in Pamplona (Spain), seminars at Universidad de Alicante (Spain) and Universidad de la Laguna (Tenerife, Spain), the EFMA 2002 Meeting in London (UK) and the XII Congreso ACEDE in Palma de Mallorca (Spain). The authors are grateful for the financial support of IVIE, the Spanish

U.S. trading in non-U.S. stocks has grown dramatically. Round-the-clock, these stocks trade in the home market, in the U.S. market and, potentially, in both markets simultaneously. We use a state space model to study 24-hour price discovery. As opposed to the standard "variance ratio" approach, this model deals naturally with (i) simultaneous quotes in an overlap, (ii) missing observations in a non-overlap, (iii) noise due to transitory microstructure effects, and (iv) contemporaneous correlation in returns due to market-wide factors. Our findings suggest a minor role for the NYSE in price discovery for Dutch shares, in spite of its non-trivial and growing market share. The results differ significantly from the variance ratio approach.

This paper characterizes the tatonnement of high-frequency returns from U.S. Treasury spot and futures markets. In particular, we highlight the previously neglected role of the futures markets in price discovery. The highest futures market shares are in the longest maturities. The estimates of 5-year and 10-year GovPX spot market information shares typically fail to reach 50% from 1999 on. The GovPX information shares for the 2-year contract are higher than those of the 5-and 10-year maturities but also decline after 1998. Standard liquidity measures, including the relative bid-ask spreads, number of trades, and realized volatility are statistically significant and explain up to 21% of daily information shares. The futures market gains information share in about 1/4 of the events where public information is released, but days of macroeconomic announcements rarely explain information shares independently of their effects on liquidity.

This article discusses the microstructure of the U.S. Treasury securities market. Treasury securities are nominally riskless debt instruments issued by the U.S. government. Microstructural analysis is a field of economics/finance that examines the roles played by heterogenous agents, institutional detail, and asymmetric information in the trading process. The article describes types of Treasury issues; stages of the Treasury market; the major players, including the role of the Federal Reserve Bank of New York and the interdealer brokers; the structure of both the spot and futures markets; the findings of the seasonality/announcement and order book literature; and research on price discovery. We conclude by discussing possible future avenues of research. JEL Codes: D53, E43, E44, G12, Keywords: Treasury, microstructure, spreads, order book, announcement * We would like to thank Dick Anderson, Frank Fabozzi, Michael Fleming, Robert Rasche and an anonymous referee for detailed comments which greatly improved this manuscript. The views expressed are those of the authors and do not necessarily reflect views of the Federal Reserve Bank of St. Louis or the Federal Reserve System.